Gold soars to record high

New York – Investors flocked to gold last Friday, sending it to the latest in a series of records, as fears about recession in the world’s major economies infected financial markets.

The metal soared as high as US$1,881.40 (S$2,273) an ounce – adding to a jump of more than 15 per cent this month alone. In the same three weeks, the Standard & Poor’s 500-stock index in the United States has fallen about 12 per cent.

As an investment, the metal has climbed because of investors’ concerns about the uncertain state of the global economy, diving stock markets and moves by central banks around the world to weaken their currencies. Central banks in developing countries are also swopping major currencies for gold in their reserves, driving up demand for the metal.

At this point, analysts say more than fear is driving gold higher. The simple fact that it has kept rising in an otherwise turbulent market is part of the metal’s appeal. The recent surge ‘lacks a lot of explanation’, said Mr Jon Nadler, an analyst for Kitco Bullion Dealers, and that, to him, signals danger of a deep reversal as it approaches US$2,000 an ounce.

But analysts have been predicting a top in the market for months, only to see gold’s climb accelerate.

The last time gold was worth less than US$1,000 an ounce was October 2009. It gained steadily from there, and then burst higher this summer, crossing US$1,600 an ounce for the first time in mid-July; three weeks later it was worth more than US$1,700 an ounce, and 10 days later it passed US$1,800 an ounce.

Gold for December delivery, the most actively traded contract, settled up US$30.20, or 1.6 per cent, at US$1,852.20 an ounce.

Still, these record highs remain below gold’s 1980 peak of US$850 when adjusted for inflation; that equals about US$2,400 in today’s dollars. That record could be knocked out if investors keep betting that gold will protect them if the US and Europe fall back into recession, which could sink stock prices.

Several major banks and economists have recently sounded warnings on the risk of a new downturn.

So what would US$2,000 an ounce gold mean for shoppers? Gold is used in industrial products and mainstream consumer goods. With every fresh high, consumers will have to pay more for everything from engagement rings to crowns for their teeth.

The surge in gold is causing ‘major problems’ for jewellery sellers, Kitco’s Mr Nadler said. Stores are asking designers to make different kinds of pieces that use less gold, swopping in steel or palladium.

And the surge in gold is affecting gold-producing countries, even minor exporters.

Police in Guyana said last Friday that the surge had triggered killings, robberies and other crimes across the South American country. Venezuela said earlier last week that it was nationalising its gold industry and bringing home its US$11 billion in gold reserves.

Source: Straits Times (subscribers only)

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